_What opportunities lay ahead for UAE hotel development?
Currently, the supply of hotel stock by the number of keys is skewed towards high-end properties. As a benchmark, in Abu Dhabi and Dubai currently, four and five-star hotels account for 66% and 57% of total available rooms respectively.
The source markets from which incremental room night demand will be generated is anticipated to comparatively price sensitive and therefore will seek more affordable accommodation.
Six of the top 10 forecast source markets have a relatively low income per capita, and even with a growing middle class, this is unlikely to translate to demand upscale or luxury hotels.
Abu Dhabi’s current pipeline consists of almost entirely of upscale to luxury properties. In Dubai, the pipeline is better weighted, with 49% of under construction branded hotel rooms in the upscale to the luxury bracket, 19% in the economy to upper-midscale and the remainder being unaffiliated stock.
Increasing supply in the luxury and upper upscale segments of the market have already put considerable pressure on rates. We can see that performance in the sector remains subdued with ADR falling by 4.1% across the UAE and RevPAR by 3.9% in 2017. Given the current pipeline of four and five-star stock due to come to the market, this could mean rates are driven down further.
"Despite falling rates, there remain opportunities for further hotel development within the UAE, however, they are not necessarily in the luxury sector but rather in the mid-scale segment."
Currently, the majority of the three-star and below supply are owner-operated properties which tend to be poorly managed and as a result do not appeal to international tourists.
Operationally we have seen a measurable difference in the key performance indicators of branded and unbranded supply at the midscale level, which is indicative of the brand equity that an operator can bring, even among price-sensitive guests.